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Tax-reform time come

Published:Thursday | May 17, 2012 | 12:00 AM

By Devon Dick

RECENTLY
, I heard Joseph Matalon, president of the Private Sector Organisation of Jamaica, being interviewed by Paula Ann Porter on RJR. He told her that he has been serving on tax reform committees from 1984. Indeed, I recall a decade ago attending a forum sponsored by international bodies at the Jamaica Conference Centre to discuss tax-reform proposals generated by the Matalon Committee. Matalon is back at it again as the head of the Private Sector Working Group (PSWG). This group is one of several groups which have made submissions about tax reform.

Unfortunately, the PSWG proposals have been overshadowed by its recommendation about giving cash grants to persons who are poor instead of GCT exemption on basic food items.

The government has rejected this weakest proposal from the group. As I have stated previously, the proposal was ill-conceived and unworkable (April 12). Since that article, I have attended one meeting of the PSWG and also had a meeting with its chairman. These persons appear sincere in their proposals and committed to Jamaica.

Slippery slope

It is recognised by Matalon that adding GCT to basic food items would be inflationary, which is not stated in the PSWG document. Matalon estimates it at 1.6 per cent. It is a slippery slope to intentionally enact a proposal with an estimated 1.6 per cent inflation rate. It could fuel an inflationary spiral.

In addition, it is a complex proposal to get a clean list of 1.1m Jamaicans to benefit from cash grants. Furthermore, the PSWG's proposal ignores the amount of money churches, businesses, educational institutions and wealthy people spend as gifts on basic foods. This increase would have a negative effect on deserving persons. It would also have a negative impact on indigent homes, nursing homes, and institutions that cater to the needy. The proposal did not wrestle with the 1,000 homeless persons in Kingston or how more difficult it will be for persons who beg. Furthermore, it is not everything that should be taxed and basic food is one of them. There are other ways to tax persons who are wealthy who might benefit dispportionately from the exemption of GCT from basic food. Nevertheless, the items on the basic food list needs revising because there is no need for the governor general, places of worship, government departments and bauxite companies to be classified under basic foods and be exempted.

Embrace other viable proposals

However, the Government should not throw out the baby with the bathwater. It has thrown out the GCT on basic food but it should embrace with haste the other viable proposals from the PSWG and other groups. The government should have as a philosophy to widen the tax net, allowing those who can afford it to bear more of the burden and use the tax reform as a means of stimulating the economy by allowing more income in the pockets of ordinary citizens.

Therefore, it would be a good idea to increase the PATH programme by $2b and increase the income-tax threshold. The GCT on all goods and services is too high and should be reduced to 12 per cent. A lower GCT rate could spur greater compliance because some merchants still operate with or without GCT. Lower tax rates were tried in the 1980s and the revenue went up. In fact, we have seen lower mortgage rates spurring growth in the building society sector. Lowering GCT is a fillip the economy needs. And if more professionals pay their fair share of income tax and property tax and companies pay their taxes, then GCT rates can be lowered.

The government should not delay any further because tax reform time come.

Rev Devon Dick is pastor of the Boulevard Baptist Church in St Andrew. Send comments to columns@gleanerjm.com